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Why Ltd is the first retailer in Amazon’s path Ltd (ASX: KGN) founder and CEO, Ruslan Kogan, has dismissed the threat of Amazon coming to Australia harming his business, but he might be wrong.

Speaking to AAP, Mr Kogan said, “Amazon will hurt some retailers no doubt but the ones they’ll hurt are the ones that are selling the same thing as everybody else at fat margins.

US online retail giant Amazon has reportedly said that it will destroy Australian retailers, which includes supermarket retailers like Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Ltd (ASX: WES), to consumer electronics specialists like JB Hi-Fi Limited (ASX: JBH) as well as many others.

If Amazon does setup an Australian retail business in September 2017 like its US counterpart, will be one of the first retailers to feel the heat. mostly sells consumer electronics, with the retailer’s push into groceries failing dismally. Kogan Pantry contains 85% fewer products today than it did at launch with just 89 products available according to And 45 of those are Sodastream products, including flavours and accessories, with another 37 Lavazza branded coffee machines and pods. That leaves just seven grocery products – none of them food items. says that if Amazon launches, it will sell items through the Amazon platform like it does through eBay. Given Amazon’s pricing power, it certainly won’t be on the most favourable terms for Kogan though, and the retailer’s margins are likely to shrink.

Unlike JB Hi-Fi, Kogan doesn’t have the bricks-and-mortar stores where foot traffic can generate a huge portion of sales. Kogan is already behind eBay and Amazon as Australia’s most visited shopping websites – and that’s before Amazon’s official arrival in Australia.

At the current share price of $1.47, Kogan has a market cap of around $137 million. After generating a pro forma net profit of $800,000 in the FY2016 year, the share price doesn’t look cheap at all. Offsetting that is the fact that the company expects to generate between $8 and $9 million in earnings before interest, tax, depreciation and amortisation (EBITDA) in the 2017 financial year (FY17). That’s more than double the $4 million in EBITDA produced in FY16.

Foolish takeaway

Investing in appears to be a high-risk strategy, given the high growth expectations already built into the share price and the huge threat in the form of Amazon arriving next year.

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Motley Fool writer/analyst Mike King owns shares in Wesfarmers. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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